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Wednesday, May 27, 2015

CHINA, GLOBAL FOOD SUPPLY CHAIN RISK

China lacks the logistics infrastructure for food protection. Yet they are an exporter of food. This situation creates supply chain risk. Too many ignore the actual supply chain when they assess supply chain risk. That is a big risk and creates risk.

China’s JD.com Invests in Produce Shipping With FruitDay

The e-commerce retailer is part of a $70 million investment that backers hope will help improve the country’s poor infrastructure for handling fruits and vegetables

ENLARGE

Chinese consumers are paying closer attention to quality and safety of 2013 of fruits and vegetables, such as these apples being packed this spring for delivery to China under a new agreement on apple trade between the U.S. and China. Photo: Associated Press

Chinese online retailer JD.com,JD-0.70% which got its start selling consumer electronics, is placing a bet on very different types of products: fresh avocados Mexico and American cherries.
The Beijing-based company, which now sells everything from clothes to household appliances, said it led an investment of $70 million in the latest round of funding by FruitDay, a Shanghai-based importer of fresh produce. FruitDay, which already sells fresh fruit on JD.com, will use the funds to build out additional infrastructure to store, ship, and track fresh produce, and to recruit management talent for the six-year-old company.
The investment highlights a race to build out logistics networks in China, where online retailers say highly segmented services and under-developed transportation infrastructure threatens to hinder growth in shipping. “China lags far behind the U.S. and other countries in terms of overall infrastructure,” said FruitDay founder and CEO Wang Wei.
This is especially true for cold-chain logistics, or the highly specialized transport of perishable goods, as consumers increasingly are conscious of quality and safety issues since the country saw a series of high-profile product-safety incidents in food supply chain in recent years.
“The amount of fruit lost due to inadequate storage is astonishing, since fruit can go bad in a very short time,” Mr. Wang said. While meat and seafood can last longer at one specific temperature, preserving fruit can involve a complicated system of combining different types of fruit at varying temperatures.

‘The amount of fruit lost due to inadequate storage is astonishing.’—FruitDay’s Wang Wei

Maggie Chen, senior logistics manager at Cainiao, a platform started by Alibaba and a consortium of logistics companies in 2013, has said as much as 80% of all fruits and vegetables in China are transported at room temperature in outdated trucks, leading to a 40% spoilage rate.

Alibaba has said it plans to invest $16 billion in China logistics, and has taken a minority stake in several logistics companies over the past year, including Shanghai YTO Express Co. Ltd. earlier this month.
Chinese cold-chain logistics is expected to grow an average of 25% a year to 470 billion yuan ($76 billion) in revenue by 2017, according to a 2014 report by Germany-based consulting firm Roland Berger. But companies will operate on thin profit margins and may have trouble convincing Chinese consumers to pay higher prices for cold chain services, the company warned.

Mr. Wang said FruitDay offers free shipping on orders of over 100 yuan ($16) to customers in over 300 cities. But a handful of large cities, including Beijing, Shanghai, Guangzhou and Shenzhen, account for the majority of orders.
He believes that growing health consciousness and more discerning consumers in China are driving demand for imported produce—American cherries are among FruitDay’s most popular products, with sales almost tripling in the last four years. Sales of avocados, once relatively unheard of in China, have grown 127-fold since 2011.
The company works with several U.S. exporters, including Sunkist Growers Inc.
“China covers a huge geographical area, and as such, the cold-chain sector requires extensive investment and expertise,” he said. “The cold-chain system is the key barrier impeding the development of online produce sales nationwide.”